Learning to read Price Action with P&F Charting
- Thread starter HolyGrail
- Start date
Wow, it turns out Investor r/t automatically records the session so I can show you some things I did today.
As I have mentioned, I like to take confirmed signals when all charts (.5,.75, and 1.0) are at least going in the same direction. I want to have a buy or sell signal actually on the .5, and .75 with one close on the .75.
Here is what the setup looked like. The file is named for the exact time. I went short 1 tick before the .75 kicked in with a double bottom sell.
Why did I assume it would continue down? All charts were one step away from going negative. The last x column was lower then the previous x column.
Now you would think all charts are in a buy or sell situation simultaneously many times during the day, but this is not true. It doesn't happen near as often as you would think. The white chart is the 1.0, grey is .75 and green .5
As I have mentioned, I like to take confirmed signals when all charts (.5,.75, and 1.0) are at least going in the same direction. I want to have a buy or sell signal actually on the .5, and .75 with one close on the .75.
Here is what the setup looked like. The file is named for the exact time. I went short 1 tick before the .75 kicked in with a double bottom sell.
Why did I assume it would continue down? All charts were one step away from going negative. The last x column was lower then the previous x column.
Now you would think all charts are in a buy or sell situation simultaneously many times during the day, but this is not true. It doesn't happen near as often as you would think. The white chart is the 1.0, grey is .75 and green .5
Now here is what the chart looked like 40 or so minutes later.
It was a 10 point move of which I ONLY GOT 3 ON ONE CONTRACT AND 4 ON THE OTHER.
I have been trying to develop a strategy as to how much I am willing to allow it to pull back against my profits, but I will be perfectly honest I really need guidance here.
I thought, and this does work, that you keep your stop loss above the x column as long as the next 0 column goes below the previous 0 column. The problem is that it does capture big trends, but when the market is not trending strongly you will just about lose or break even on all of your setups. It seems like everything you do is a compromise of some sort.
It was a 10 point move of which I ONLY GOT 3 ON ONE CONTRACT AND 4 ON THE OTHER.
I have been trying to develop a strategy as to how much I am willing to allow it to pull back against my profits, but I will be perfectly honest I really need guidance here.
I thought, and this does work, that you keep your stop loss above the x column as long as the next 0 column goes below the previous 0 column. The problem is that it does capture big trends, but when the market is not trending strongly you will just about lose or break even on all of your setups. It seems like everything you do is a compromise of some sort.
I'll tell you what, I really like this recorded playback stuff. I am going through the whole day now to see if I am consistent in my approach. I can already see I missed some trades, but that could be when I was busy doing what I am supposed to be doing at the office.
I am going to go back to the low range day where I lost my limit and see if I could have done anything better.
I am going to go back to the low range day where I lost my limit and see if I could have done anything better.
Well here is my worst trade of the day, but when I look at it I would still have entered when I did. It was just unfortunate I did it with 3 contracts. (that always happens when you have too much confidence, and you've had a good day trying to top it off to an even better day)
I bought off the green chart or the .5. My rule is to buy in between the .5 and .75 trigger. Well it hit that trigger and never proceeded to trigger a sell on the grey chart.
I tried to scale out and lost 2.25 points on 1 contract, and 3.5 points on the other two. Greed is not good. Normally I would have traded one contract on the breakout, and 1 on the first reversal. Lack of discipline KILLS.
I bought off the green chart or the .5. My rule is to buy in between the .5 and .75 trigger. Well it hit that trigger and never proceeded to trigger a sell on the grey chart.
I tried to scale out and lost 2.25 points on 1 contract, and 3.5 points on the other two. Greed is not good. Normally I would have traded one contract on the breakout, and 1 on the first reversal. Lack of discipline KILLS.
HG.
I would have to go back and look at my old posts to see if I mentioned this, but as far as the ten point moves you missed full profits on. I ALWAYS take my position off at plus ten. I my back testing I found few moves that didn't have a significant retracement after going ten or twelve points.
As for the trade management, I always put my stop one box above the last x row for shorts (under the o row for longs) and leave it there until my plus one and plus two are hit. I then move the stop to entry and or trail it one box above or below whichever is better, until it stops out. This means you are always stopped out on a reversal signal. In slow markets I reduce the initial targets to .5 and one. I don't see any other way to trade P&F than with at least three contracts. With two you can only take the initial profit and trail the other. This is fine but very often the moves are plus two or so then a reversal. Getting two than moving stop to entry or one box for last retracement (whichever is better) always gets you a profitable trade. The only loosers are the quick reversals or the one point and done moves and these are manageable losses.
I know its heresy to say this, but if you will apply a 34 period EMA to your charts and take longs only above the MA and shorts only below it you will find that it cuts down on the loosers. You may find that it keeps you out of a few good trades on a big reversal but these are risky trades with a higher level of failure. I hope one moving average doesn't mean its not pure price any more
I would have to go back and look at my old posts to see if I mentioned this, but as far as the ten point moves you missed full profits on. I ALWAYS take my position off at plus ten. I my back testing I found few moves that didn't have a significant retracement after going ten or twelve points.
As for the trade management, I always put my stop one box above the last x row for shorts (under the o row for longs) and leave it there until my plus one and plus two are hit. I then move the stop to entry and or trail it one box above or below whichever is better, until it stops out. This means you are always stopped out on a reversal signal. In slow markets I reduce the initial targets to .5 and one. I don't see any other way to trade P&F than with at least three contracts. With two you can only take the initial profit and trail the other. This is fine but very often the moves are plus two or so then a reversal. Getting two than moving stop to entry or one box for last retracement (whichever is better) always gets you a profitable trade. The only loosers are the quick reversals or the one point and done moves and these are manageable losses.
I know its heresy to say this, but if you will apply a 34 period EMA to your charts and take longs only above the MA and shorts only below it you will find that it cuts down on the loosers. You may find that it keeps you out of a few good trades on a big reversal but these are risky trades with a higher level of failure. I hope one moving average doesn't mean its not pure price any more
What I like about this thread is that someone has take a very simple methodology and made it work. Not for just himself but also for struggling traders that are searching for a way just to be consistently profitable. The discovery of additional high % setups, that are not in "the books", is very commendable. Creativity at work 
Quote from howardcsh:
HG.
I would have to go back and look at my old posts to see if I mentioned this, but as far as the ten point moves you missed full profits on. I ALWAYS take my position off at plus ten. I my back testing I found few moves that didn't have a significant retracement after going ten or twelve points.
As for the trade management, I always put my stop one box above the last x row for shorts (under the o row for longs) and leave it there until my plus one and plus two are hit. I then move the stop to entry and or trail it one box above or below whichever is better, until it stops out. This means you are always stopped out on a reversal signal. In slow markets I reduce the initial targets to .5 and one. I don't see any other way to trade P&F than with at least three contracts. With two you can only take the initial profit and trail the other. This is fine but very often the moves are plus two or so then a reversal. Getting two than moving stop to entry or one box for last retracement (whichever is better) always gets you a profitable trade. The only loosers are the quick reversals or the one point and done moves and these are manageable losses.
I know its heresy to say this, but if you will apply a 34 period EMA to your charts and take longs only above the MA and shorts only below it you will find that it cuts down on the loosers. You may find that it keeps you out of a few good trades on a big reversal but these are risky trades with a higher level of failure. I hope one moving average doesn't mean its not pure price any more
Thank you Howard. I think that is great input. I used to trail my stops immediately, but later found that if I made a target and held my entire position to the target (whether right or wrong) my average win per contract was higher by about 45 dollars more without any appreciable loss.
I do get frustrated when I don't catch at least 1/2 of a major move. I feel like there is no excuse for it.
LOL, on the moving average. I have no problem with indicators as long as you don't lose focus on price. Many charting programs screw up indicators when you put them on a P&F chart. You get a totally different result from p&F than you do with candlestick. The good p&f programs handle this ok though.
I use my defined trend line theory to do the same thing you are doing with MA.
Hell, I am always experimenting to increase the odds. I can tell you one thing though. You will get your best reversals from a top or bottom of the day so failed double tops and bottoms in those locations should make you forget what the moving average is telling you.